Each year, property owners in the Gulf Coast region of the United States brace for the possibility of a hurricane. Insurers likewise brace for the property damage claims that follow the storms. The Gulf of Mexico is warming at unprecedented rates, and the size and severity of storms and the resulting devastation are expected to rise, fueling increasing costs for residents and their insurers. With Louisiana on the Gulf Coast and a frequent victim of the power of large storm events, insurers are closely watching the effect of lawmakers' recent restructuring of Louisiana's bad faith laws.
Previously, Louisiana insureds who filed bad faith lawsuits could effectively elect between two statutes: La. R.S. 22:1892 or La. R.S. 22:1973. The statutes, while similar, imposed different duties and penalties upon insurers. This created a confusing legal landscape with uncertainty for insurers. Louisiana lawmakers sought to address these problems by enacting new bad faith laws, which took effect July 1, 2024.
Under the old version of La. R.S. 22:1892, insurers were required to issue payment for covered loss within 30 days of receipt of "satisfactory proof of loss," broadly defined to include proof enabling the insurer to recognize that the insured is probably due some reasonably determinable amount of the policy's coverage benefits. In the event of a late payment, this statute provided for the insured to recover a penalty of 50% of the amount owed under the policy or $1,000, whichever is greater, plus reasonable attorney's fees and costs.
Under the old version of La. R.S. 22:1973, insurers were required to issue payment for covered loss within 60 days of receipt of satisfactory proof of loss. In the event of a late payment, this statute provided for the insured to recover general damages or special damages sustained by the insured plus a penalty "not to exceed two times the damages sustained or $5,000, whichever is greater."
Under the new laws, La. R.S. 22:1973 was repealed, but some of its provisions are incorporated in an amended version of La. R.S. 22:1892. In the amended version of La. R.S. 22:1892, insurers have 60 days from receipt of satisfactory proof of loss to pay amounts due on residential property claims, and now have 90 days from receipt of satisfactory proof of loss to pay amounts due on commercial property claims. In the event of late payment, the insured may recover a penalty of 50% of the amount owed under the policy plus any proven economic damages or $5,000, whichever is greater, plus reasonable attorney's fees and costs. Damages are limited to "proven economic damage" arising from the breach of an insurer's duty of good faith. General damages, such as mental anguish damages, are no longer recoverable.
Significantly, the new law provides for a form of quasireverse bad faith, recognizing that the insured and the insured's representatives have duties of good faith and fair dealing when submitting an insurance claim. Acts constituting a breach of the insured's duty of good faith could include a failure to comply with the conditions of the policy, misrepresenting material facts in the claim process or submitting claims lacking an evidentiary basis, among others. Notably, this addition does not create a cause of action for the insurer. Rather, the trier of fact is bound to consider any breach by the insured when determining whether to award penalties or fees against the insurer.
Another noteworthy part of the new law is that for catastrophic losses involving immovable property (real property), insureds may no longer file a lawsuit for bad faith penalties and attorney's fees without first complying with a 60-day "cure period notice" requirement. If the insurer pays the total amount of the demand within 60 days, plus expenses and attorney's fees (not to exceed 20%), any bad faith claim for the amount at issue is cut off. If the insurer issues a timely partial payment, the penalty on the amount paid is reduced by half (if penalties are ultimately awarded). If an insured files suit prior to transmitting the cure period notice, the suit is automatically stayed until 60 days after the cure period notice is received. If the insurer timely pays the full amount demanded, the prematurely filed suit must be dismissed at the insured's cost.
Whether these new changes will impact insurers in Louisiana on a large scale remains unknown until after the next big storm, but certain practical impacts can be anticipated. The additional time to pay under the new law should enable insurers, typically inundated with claims in the wake of a hurricane, to comply with the timeframes more easily. Ideally, the defense of quasi-reverse bad faith, the elimination of general damages, and the narrowing of penalties will limit the number of suits. And, if payments are not timely, the insurer's opportunity to cure should prove an additional helpful deterrent to unwarranted litigation.
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